A Panorama of the World’s Foreign Exchange Reserves: Food for Thought

Generalised statistics on foreign exchange reserves around the world are no secret, but are published extremely rarely. The main sources of such statistical information are the International Monetary Fund (IMF) and the Bank for International Settlements (BIS), and the most recent figures were published at the end of the first quarter of 2014. The total amount of foreign exchange reserves held by all IMF member countries at that time stood at $11.86 trillion. This is approximately equal to 70 per cent of US gross domestic product (GDP) for 2013. According to the IMF, the global gross domestic product in 2013 (calculated on the basis of purchasing power parity) stood at $74 trillion. It therefore works out that the foreign exchange reserves of every country in the world made up 16 per cent of global GDP.

Table 1.

The world’s international foreign exchange reserves (end of the first quarter 2014)

Trillions of dollars

%

Total:

11.86

100

Economically developed countries

3.87

32.6

Countries on the periphery of global capitalism

7.99

67.4

As Table 1 shows, more than two thirds of the world’s foreign exchange reserves are held by countries on the periphery of global capitalism, leaving economically developed countries (countries of the ‘golden billion’) with less than one third. There is a pronounced asymmetry here. Economically developed countries account for approximately 50 per cent of global GDP (calculated on the basis of purchasing power parity), and the remaining 50 per cent is accounted for by countries on the periphery of global capitalism (which includes China, Russia, and other BRICS countries). So, the share of foreign exchange reserves concentrated in economically developed countries turns out to be considerably lower than their share of global GDP, while the picture is reversed for countries on the periphery of global capitalism.

International foreign exchange reserves are debt claims held by the country that has accumulated them against the rest of the world. This means that by accumulating international foreign exchange reserves, countries on the periphery of global capitalism are a powerful credit facility for economically developed countries. Given that the majority of international foreign exchange reserves are formed by the treasury debt securities of ‘golden billion’ countries, which have extremely low interest rates (currently less than 0.25 per cent on US Treasury securities), it works out that countries on the periphery of global capitalism, including both Russia and China, are extending almost interest-free credit to ‘golden billion’ countries. The West has therefore turned international foreign exchange reserves into an effective tool for the neocolonial plundering of countries outside of the ‘golden billion’.

For a number of Western countries, there is generally little sense in building large currency reserves since these countries’ central banks issue reserve currencies. To put it another way, they purchase goods in the world market and make other necessary international payments through the use of their printing presses. A national monetary unit obtains reserve currency status on the basis of specific IMF criteria. These criteria are designed in such a way that only a few monetary units – the US dollar, the euro, the British pound sterling and the Japanese yen – fall into the category of ‘primary’ reserve currencies. ‘Secondary’ reserve currencies include the Swiss franc, the Canadian dollar, the Australian dollar and, at a stretch, the currencies of Scandinavian countries not part of the European Union. Reserve currency status is not granted to the currencies of countries at the periphery of the International Monetary Fund.

Also, there are no restrictions on IMF member countries accumulating any currency they want in their international reserves. More importantly, the IMF does not require its member countries to disclose the composition of its international reserves by currency. They can limit themselves to providing international foreign exchange reserve totals.

Table 2.

The disclosure level of international foreign exchange reserve structures by currency (end of the first quarter 2014; %)

All international foreign exchange reserves

Share of international foreign exchange reserves which disclose currency structure

Share of international foreign exchange reserves which do not disclose currency structure

Every country in the world

100

52.0

48.0

Economically developed countries

100

89.1

10.9

Countries on the periphery of global capitalism

100

34.1

65.9

As Table 2 shows, economically developed countries provide the IMF with a relatively ‘transparent’ picture of their international reserves, whereas countries on the periphery of global capitalism prefer not to disclose the currency structure of their reserves. Worldwide, nearly half of international foreign exchange reserves are ‘nontransparent’.

Table 3.

The structure of international foreign exchange reserves (the ‘transparent’ part) by currency (end of the first quarter 2014; %)

The whole world

Economically developed countries

Countries on the periphery of global capitalism

Dollar, US

60.9

61.5

60.2

Euro, European Union

24.5

24.7

24.2

Pound sterling, Great Britain

3.9

2.9

5.0

Yen, Japan

4.0

4.6

3.2

Franc, Switzerland

0.3

0.3

0.2

Dollar, Canada

1.9

1.6

2.2

Dollar, Australia

1.7

1.6

1.8

Other currencies

2.8

2.8

3.2

As can be seen from Table 3, the currency structure of the reserves held by countries of the ‘golden billion’ and countries on the periphery of global capitalism do not differ that greatly. However, it should once again be remembered that the statistics cited only cover part of the overall global picture. There is a suspicion that those countries on the periphery of global capitalism that reveal the currency structure of their reserves are taking their cue from the general policy of the West, and are ‘aligning’ the currency structure of their reserves with the structure being formed by Western countries. The majority of countries on the periphery of global capitalism have their own ideas about the optimal structure of their foreign exchange reserves, but they do not advertise these ideas, which is why they do not disclose the composition of their currency reserves.

It is possible to suppose that a number of countries on the periphery of global capitalism have been building up currencies in their currency reserves that the IMF does not recognise as reserve currencies, in other words ‘tertiary’ currencies, for a long time. There could be a variety of reasons for this. To begin with, currencies like these are used in bilateral trade. They are easier to get, and are actually more sought-after for maintaining bilateral economic relations. Moving away from the accumulation of ‘primary’ and ‘secondary’ currencies reduces the risk of sanctions being imposed against the country operating in such a fashion by the West. A pioneer here is Iran, which has been subjected to an economic blockade by Washington since 1979. For a long time now, Tehran has chosen not to stockpile the US dollar in its reserves and, comparatively recently, the euro as well (after the US involved the EU in its sanctions and forced it to stop buying Iranian oil). Tehran’s international reserves include the yuan, the rupee, the Russian rouble, gold...

The most significant of the ‘tertiary’ currencies is the Chinese yuan. Without waiting for the IMF to grant the yuan reserve currency status (the IMF wants China to introduce full yuan convertibility and make it free floating), a number of African, Asian and Latin American countries are stockpiling it in their reserves. At the beginning of 2012, experts believe that the yuan was to be found in the international reserves of 12 countries. To date, the People’s Bank of China has signed currency swap agreements with the central banks of more than 20 countries. These agreements involve the exchange of national currency units to maintain trade and economic relations between China and other countries.

The same goes for the Russian rouble, which is also categorised as a ‘tertiary’ currency; it has long been included in the composition of some post-Soviet countries’ international reserves. In 2011, for example, the Russian rouble accounted for nearly 25 per cent of Belarus’ international reserves. Considering that China and Russia are planning to move up to half of their bilateral trade over to rouble and yuan in the next few years, these currencies will naturally become an integral part of both these countries’ international reserves.